Tax Breaks On Long-Term Care Insurance Premiums Proposed

Two bills that would allow employees to use their 401(k) and 403(b) plans to purchase long-term care insurance (LTCI) with pre-tax dollars, and without incurring penalties, are making their way through the House and Senate.

In September, Sen. George Allen (R-VA) reintroduced legislation offering these tax incentives for buying LTCI, S. 1706, the Long-Term Care Act of 2005. A companion bill in the House, H.R. 976, would permit people to use their IRAs, as well as their employer-sponsored defined contribution plans, to pay for LTCI premiums.

Commenting on the proposed legislation, Merrill Matthews, director of the Council for Affordable Health Insurance, said,"The Long-Term Care Act is a win-win solution. Many Americans are already saving in their retirement plans to have a comfortable life once they become seniors. By allowing individuals to pay LTCI premiums with their tax-deferred savings, it encourages people to get coverage while they are younger when premiums are more affordable; and if they ever happen to need the plan, their retirement savings won't be wiped out. CAHI applauds Sen. Allen for introducing this legislation."